Gold futures close lower after hitting a 27-year high

December gold scores weekly gain of almost 3% on weak dollar, strong oil

PolyaLesova

SAN FRANCISCO (MarketWatch) -- Gold futures closed lower Friday, retreating from a 27-year high in electronic trading, but scoring a weekly gain of almost 3% an ounce as a weak dollar and high oil prices continued to feed demand.

"Although the market is significantly overbought and throwing off a bunch of bearish signals, the momentum is still calling the market higher," said Zachary Oxman, a senior trader at Wisdom Financial. "Gold is focusing on easier monetary policy, which will attract gold demand."

But prices will likely see a correction into the $710-$720 level, he said in emailed remarks, "which should be a great buying opportunity for a continued leg up as gold approaches $800 by year end.

Gold for December delivery closed $1 lower at $738.90 an ounce on the New York Mercantile Exchange. The contract finished 2.9%, or $21.10, above the $717.80 level it closed at a week ago.

In electronic trading Friday, gold prices rose to a high of $747.10, a level that hasn't been seen by a lead-month contract on the exchange since 1980.

Analysts warned about the risk of a temporary retreat in prices, but also said there are few factors that would halt the metal's climb in the long term. See Commodities Corner.

"Gold may succumb to profit-taking in the coming days as we are slightly overbought in the short term," said Mark O'Byrne, director at Gold and Silver Investments Ltd., in a research note. "While consolidation is likely we believe gold will again reach $800-plus prices by year-end."

Gold prices will continue to draw support from the recent decline in the dollar to record lows, high oil prices and increasing concern about the health of the world's largest economy, O'Byrne said.

Indeed, "given the dollar's continued losses and the strength in the energy sector, it looks as if gold will find further upside momentum in the coming sessions, potentially targeting $765 before more significant profit-taking is seen," said James Moore, analyst at TheBullionDesk.com, in a research note.

On the currency markets, the euro hit a record high of $1.4119 and the Canadian dollar was again hovering around parity to the greenback. The Dollar Index, which tracks the performance of the dollar against other major currencies, was almost unchanged at 78.56.

Moore said gold may benefit from a period of consolidation, "however, the absence of any significant resistance levels means that gold is in uncharted territory and making its own history," he said.

On Thursday, gold closed up $10.40 at $739.90 an ounce. It touched a high of $746.30, an intraday level a lead-month contract on the exchange hasn't reached in at least 27 years. See Metals Stocks.

Other metals prices finished on a mixed note Friday, with silver making big weekly gain. December silver closed up 15 cents at $13.62 an ounce, ending 7.2% higher for the week.

December copper fell by 0.2 cent to close at $3.5925 a pound. It was up 6% from a week ago.

October platinum climbed $3 to close at $1,331.60 an ounce but December palladium closed down $1.55 at $342.55 an ounce.

"Fundamentals are still supportive for gold through year-end and should boost other metals as well," said Oxman.

"Continued reports of strong physical demand in price-sensitive markets in the Middle East and India will keep prices firm," he said. And "expectations of strong gold sales have been forecast by jewelry executives in Dubai and Italy this week as well."

Gold warehouse inventories were unchanged at 7.07 million troy ounces, according to Nymex data as of late Wednesday. Silver supplies were unchanged at 133.4 million troy ounces as of late Thursday, and copper supplies fell by 82 short tons to stand at 20,193 short tons.

Indexes head lower

Indexes tracking mining and metals stocks closed modestly lower, but the Philadelphia Gold and Silver Index
XAU, -1.30%
logged a gain of nearly 9% for the week after ending last week at 158. The index closed down 0.3% at 171.55 points.

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